Refining 101 January 17, 2013

Safe Harbor Statement Statements contained in this presentation that state the Company’s or management’s expectations or predictions of the future are forward– looking statements intended to be covered by the safe harbor provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934. The words “believe,” “expect,” “should,” “estimates,” and other similar expressions identify forward–looking statements. It is important to note that actual results could differ materially from those projected in such forward–looking statements. For more information concerning factors that could cause actual results to differ from those expressed or forecasted, see Valero’s annual reports on Form 10-K and quarterly reports on Form 10-Q, filed with the Securities and Exchange Commission, and available on Valero’s website at www.valero.com.

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Lane Riggs Senior Vice President Refining Operations

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Crude Oil Characteristics • Crudes are classified and priced by density and sulfur content • Crude density is commonly measured by API gravity – API gravity provides a relative measure of crude oil density – The higher the API number, the lighter the crude • Light crudes are easier to process

• Heavy crudes are more difficult to process

• Crude sulfur content is measured as a percentage – Less than 0.7% sulfur content = sweet – Greater than 0.7% sulfur content = sour – High sulfur crudes require additional processing to meet regulatory specs

• Acid content is measured by Total Acid Number (TAN) – Acidic crudes highly corrosive to refinery equipment

– High acid crudes are those with TAN greater than 0.7 – Becoming more important, particularly as Brazilian production increases 4

Crude Oil Basics Crude Oil Quality by Types

SOUR

4.0% 3.5%

SULFUR CONTENT

3.0%

M-100 (resid)

Sweet

Arab Heavy

2.5%

Arab Medium

High Acid (Sweet)

Dubai Mars Arab Light

Napo

2.0%

Iran Heavy AmerivenHamaca

1.5% SWEET

Estimated Quality of Reserves (2012)

Cold Lake Cerro Negro Maya WCS

Urals

0.5%

Brent Cabinda

0.0% 15

20

25

30

WTI

LLS

Bonny Light

35

40

Light/Medium Sour

3% Heavy Sour 18%

Alaskan North Slope

1.0%

23%

Eagle Ford and Bakken

56%

Tapis

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50 Source: DOE, Oil & Gas Journal, Company Information

HEAVY Source: Industry reports

API GRAVITY

LIGHT

• Majority of global crude oil reserves are sour • Most quoted benchmark prices are light sweet crude oils – WTI (West Texas Intermediate), Western Hemisphere – Brent (North Sea Crude), Europe – Tapis/Oman (Middle East), Asia Pacific 5

What’s in a Barrel of Crude Oil? Crude Oil Types

Characteristics

Inherent Yields 3%

> 34 API Gravity

Light Sweet (e.g. WTI, LLS, Brent)

35% Demand Most Expensive

24 to 34 API Gravity

Medium Sour (e.g. Mars, Arab Light, Arab Medium, Urals)

> 0.7 % Sulfur

< 24 API Gravity

(e.g. Maya, Cerro Negro, Cold Lake, Western Canadian Select)

30%

8% 8%

35% 2% 24% 26%

45%

50% Demand Less Expensive

Heavy Sour

32%

< 0.7 % Sulfur

2011 U.S. Refinery Production

> 0.7 % Sulfur

Propane/ Refinery Butane Gases Gasoline RBOB CBOB Conventional CARB Premium

48%

38%

Distillate Jet Fuel Diesel Heating Oil

1% 15% 21%

9%

Heavy Fuel Oil & Other

15% Demand Least Expensive

63%

Source: EIA Refiner Production

Refineries upgrade crude oil into higher value products

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Basic Refining Concepts Intermediates < 90°F C1 to C4

90–220°F C5 to C8

Final Products

Propane, Butane and lighter Straight Run Gasoline (low octane)

• Refinery fuel gas • Propane • NGLs More

• Gasoline (high octane)

processing

Crude oil 220–315°F

Distillation Tower (Crude Unit)

Naphtha

C8 to C12

processing

315–450°F

More

Kerosene

C12 to C30

450–650°F

Furnace

processing

Light Gas Oil

C30 to C50+

650–800°F

Vacuum Unit

More

Heavy Gas Oil

C50 to C100+

processing

More processing

C 30 to C50+

800+°F

More

Residual Fuel Oil/Asphalt

More processing

• Gasoline (high octane) • Jet fuel • Kerosene • Jet fuel • Diesel • Fuel oil • Gasoline (high octane) • Diesel • Fuel oil • Gasoline (high octane) • Diesel • Fuel oil • Gasoline (high octane) • Diesel • Fuel oil • Lube stocks

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Hydroskimming/Topping Refinery

Light Sweet Crude

Distillation Tower

4%

Low Octane Gasoline and Naphtha

32%

LS Kerosene/Jet Fuel

32%

32%

Simple, low upgrading capability refineries run sweet crude

Propane/ Butane Gasoline RBOB CBOB Conventional CARB Premium Distillate Jet Fuel Diesel Heating Oil

Heavy Fuel Oil & Other

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Crude and Vacuum Towers

Heater

Crude Atmospheric Tower

Vacuum Tower

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Medium Conversion: Catalytic Cracking 8%

Light Sour Crude

Distillation Tower

Low Octane Gasoline and Naphtha

43%

Propane/ Butane Gasoline RBOB CBOB Conventional CARB Premium

LS Kerosene/Jet Fuel

30% LS Diesel/Heating Oil

19%

Distillate Jet Fuel Diesel Heating Oil

Heavy Fuel Oil & Other

Moderate upgrading capability refineries tend to run more sour crudes while achieving increased higher value product yields and volume gain

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Medium/ Heavy Sour Crude

Distillation Tower

High Conversion: Coking/Resid Destruction

Low Octane Gasoline and Naphtha

High Octane Gasoline

HS Kerosene/Jet Fuel

LS Kerosene/Jet Fuel

HS Diesel/Heating Oil

LS Diesel/Heating Oil

6%

Propane/ Butane

47%

Gasoline RBOB CBOB Conventional CARB Premium

33%

14%

Distillate Jet Fuel Diesel Heating Oil

Heavy Fuel Oil & Other

Complex refineries can run heavier and more sour crudes while achieving the highest light product yields and volume gain

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Cokers Delayed Coker Superstructure holds the drill and drill stem while the coke is forming in the drum

Fluid Coker

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Gary Simmons Vice President Crude, Feedstock Supply & Trading

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Hydrocracking Basics Objective • Upgrade high sulfur vacuum gasoil (VGO) to low sulfur light products (diesel, jet, and gasoline) • 20% to 30% volume expansion due to hydrogen saturation; gas to liquids! • Favorable economics, especially when natural gas is relatively cheap versus crude oil Hydrocracking Unit

High Sulfur VGO (HC-S)

HC-S HC-S

H2

H2

HC

Desulfurized Hydrocrackate Gasoline

HC-S H2

H2 H2 Catalysts H2 H2 HC-S H2 H2 HC-S H2 HC-S

HC

H2S

Desulfurized Ultra Low Sulfur Jet/Diesel Elemental Sulfur Sulfur Plant • Agricultural S S S • Pharmaceutical S S

S

Hydrogen Unit H2 H2 H2

H2

H2 H2

1300+ PSI; 725 to 780 F

LEGEND HC : Hydrocarbon H2 : Hydrogen S : Sulfur 14

Key Drivers for Valero’s Hydrocrackers • Key economic driver is the expected significant liquid-volume expansion of 20%, which primarily comes from the hydrogen saturation via the highpressure, high-conversion design • Designed to maximize distillate yields Hydrocracker Unit Feedstocks High-sulfur VGO

Hydrocracker Unit Operating Costs

60,000 BPD

(Internally produced or purchased)

Hydrogen

124 MMSCF/day

Heat, power, labor, etc.

$1.50 per barrel

(per barrel amount based on hydrocracker unit volumes)

(via 40,000 mmbtu/day of natural gas)

Hydrocracker Unit Products (BPD)

Synergies with Plant

Distillates (diesel, jet, kero)

44,000

With existing plant

Gasoline and blendstocks

24,000

(per barrel amount based on hydrocracker unit volumes)

LPGs

3,000

Low-sulfur VGO

1,000

Total

72,000

~$1 per barrel

12,000 BPD (20%) volume expansion 15

Port Arthur Hydrocracker

Hydrocracker Unit

Hydrocracker Reactors 16

Refinery Optimization Key Model Inputs

Key Model Outputs

Feedstock and product properties

Refinery operating rates

Feedstock and product prices Operating unit configuration/yields

Feedstock selections

Refinery LP Model

Operating unit constraints Feedstock and product prices

Product yields/cut points targets Product production volumes Intermediate sales and purchases

• Valero uses linear programming models (LP) to optimize its refineries • LPs are complex models that incorporate: – Representations of each refinery unit’s operations – Every potential feedstock, intermediate, and product • Takes into account varying properties and pricing

• LP results guide decisions on refinery utilization, feedstock purchases, and product yields • Valero does this by unit, by refinery, and across its portfolio of refineries 17

Typical Refining Unit Volume Gain/Loss Refining Unit

Volume Gain/Loss on feedstock to unit

Reformer running at High severity

- 30% to - 20%

Low severity

- 20% to - 10%

FCC

+ 5% to + 15%

Alkylation

- 20% to - 25%

Coker

- 25% to - 35%

Full-conversion Hydrocracker

+ 20% (targeting heavier diesel products) to + 35% (targeting lighter gasoline products) 18

Gulf Coast Refineries and Growing Availability of Domestic Light Sweet Crude Oil • Growing supply of domestic light sweet crude is expected to provide a structural discount for Gulf Coast light sweet crudes • How do you deal with growing supply of cheaper light sweet volumes? 1. Back out imports from existing light sweet capacity 2. Fill previously uneconomic light sweet capacity 3. Additional light sweet crude runs will need to displace heavier crude oil volumes 4. Pursue projects that address constraints to using light sweet crudes

• Refinery configuration plays a large part in determining the suitability of crudes and feedstocks in a given refinery • Crude and feedstock selection is based on the relative economics of available choices assisted by analysis using LP models 19

Issues with Processing Light Crudes • Refineries are designed for a specific range of crude oil properties – Otherwise construction costs would be prohibitively high • Lighter crudes contain significantly more light components, e.g., propane, butane, straight run gasoline, naphtha Intermediates < 90°F C1 to C4

Distillation Tower (Crude Unit)

90–220°F C5 to C8

220–315°F C8 to C12

Final Products

Propane, Butane and lighter Straight Run Gasoline (low octane)

Naphtha

• Refinery fuel gas • Propane • NGLs More processing

More processing

• Gasoline (high octane)

• Gasoline (high octane) • Jet fuel

• Be careful about generalizing crude oil properties and their impact on product yields – Some light crudes are inherently diesel rich or inherently gasoline rich despite having a similar API gravity – As we have shifted our diet to higher API domestic shale crudes (Eagle Ford, Bakken, etc.), we have seen distillate yields stay about the same 20

Key Constraints • Many factors can constrain the ability to process light components • Constraints are very specific to each refinery and individual crude unit within a refinery • They may occur in the crude unit itself, or in the downstream processing of lighter components into finished products • Examples include: – Distillation tower has insufficient capacity for light components – Hydraulic capacity of overhead distillation hardware – Heater or heat exchanger design limits ability due to insufficient heater flexibility or limited ability to cool and condense higher volume of light ends – Saturated gas plant has insufficient capacity to process additional volume – Downstream processing capacity limits ability to convert intermediates into finished products

• Depending on the constraint, solutions can range from $10 million to hundreds of millions 21

Valero’s Ability to Run Discounted Light Crude • Valero has increased the amount of domestic light crudes processed as additional volumes have become available

• Valero has ceased all imports of foreign light crudes for its Gulf Coast and Memphis refineries • Valero is evaluating potential projects to further increase its domestic light crude processing capacity

Gulf Coast + Memphis Light Crude Processing (MBPD)

600 Import 500 Domestic 400 300 200 100 0 2010

2011

1Q12

2Q12

3Q12

4Q12E

Current Capacity

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Ashley Smith Vice President Investor Relations

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Successfully Completed Port Arthur Hydrocracker Port Arthur

• 57,000 BPD Port Arthur hydrocracker complete and operating above expectations – Higher diesel quality with cetane numbers in the low 60s versus expected low 50s • Exceeds European specifications by over 10 cetane numbers • Provides blending opportunity to upgrade margin on lower-quality distillate production

St. Charles

– Product yields exceeding expectations with total distillate yield of approximately 69% versus expected 61%

• Estimate 60,000 BPD St. Charles HCU mechanical completion and operating in 2Q13 • Both hydrocrackers are designed to benefit from the high crude and low natural gas price outlook • Pursuing projects to expand capacity of each unit to 75,000 BPD in 2015 24

Valero’s Hydrocracker Projects Show Profits Under Various Price Sets Estimated Annual EBITDA Contribution

millions

$1,600

St. Charles Hydrocracker Project

$1,400

Port Arthur Hydrocracker Project $1,200 $1,000 $800 $600 $400 $200

$0 2008 Prices

2009 Prices

2010 Prices

2011 Prices

2012 Prices

Note: EBITDA = Pretax operating income + depreciation and amortization, excludes interest expense; see details in appendix

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Q&A

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Appendix

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Major Refining Processes – Crude Processing • Definition – Separating crude oil into different hydrocarbon groups – The most common means is through distillation

• Process – Desalting – Prior to distillation, crude oil is often desalted to remove corrosive salts as well as metals and other suspended solids. – Atmospheric Distillation – Used to separate the desalted crude into specific hydrocarbon groups (straight run gasoline, naphtha, light gas oil, etc.) or fractions. – Vacuum Distillation – Heavy crude residue (“bottoms”) from the atmospheric column is further separated using a lower–pressure distillation process. Means to lower the boiling points of the fractions and permit separation at lower temperatures, without decomposition and excessive coke formation.

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Major Refining Processes – Cracking • Definition – “Cracking” or breaking down large, heavy hydrocarbon molecules into smaller hydrocarbon molecules thru application of heat (thermal) or through the use of catalysts

• Process – Coking – Thermal non–catalytic cracking process that converts low value oils to higher value gasoline, gas oils and marketable coke. Residual fuel oil from vacuum distillation column is typical feedstock. – Visbreaking – Thermal non–catalytic process used to convert large hydrocarbon molecules in heavy feedstocks to lighter products such as fuel gas, gasoline, naphtha and gas oil. Produces sufficient middle distillates to reduce the viscosity of the heavy feed. – Catalytic Cracking – A central process in refining where heavy gas oil range feeds are subjected to heat in the presence of catalyst and large molecules crack into smaller molecules in the gasoline and surrounding ranges. – Catalytic Hydrocracking – Like cracking, used to produce blending stocks for gasoline and other fuels from heavy feedstocks. Introduction of hydrogen in addition to a catalyst allows the cracking reaction to proceed at lower temperatures than in catalytic cracking, although pressures are much higher. 29

Major Refining Processes – Combination • Definition – Linking two or more hydrocarbon molecules together to form a large molecule (e.g. converting gases to liquids) or rearranging to improve the quality of the molecule

• Process – Alkylation – Important process to upgrade light olefins to high–value gasoline components. Used to combine small molecules into large molecules to produce a higher octane product for blending with gasoline. – Catalytic Reforming – The process whereby naphthas are changed chemically to increase their octane numbers. Octane numbers are measures of whether a gasoline will knock in an engine. The higher the octane number, the more resistance to pre or self–ignition. – Polymerization – Process that combines smaller molecules to produce high octane blending stock. – Isomerization – Process used to produce compounds with high octane for blending into the gasoline pool. Also used to produce isobutene, an important feedstock for alkylation.

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Major Refining Processes – Treating • Definition – Processing of petroleum products to remove some of the sulfur, nitrogen, heavy metals, and other impurities

• Process – Catalytic Hydrotreating, Hydroprocessing, sulfur/metals removal – Used to remove impurities (e.g. sulfur, nitrogen, oxygen and halides) from petroleum fractions. Hydrotreating further “upgrades” heavy feeds by converting olefins and diolefins to parafins, which reduces gum formation in fuels. Hydroprocessing also cracks heavier products to lighter, more saleable products.

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List of Refining Acronyms                              

AGO – Atmospheric Gas Oil ATB – Atmospheric Tower Bottoms B–B – Butane–Butylene Fraction BBLS – Barrels BPD – Barrels Per Day BTX – Benzene, Toluene, Xylene CARB – California Air Resource Board CCR – Continuous Catalytic Regenerator DAO – De–Asphalted Oil DCS – Distributed Control Systems DHT – Diesel Hydrotreater DSU – Desulfurization Unit EPA – Environmental Protection Agency ESP – Electrostatic Precipitator FCC – Fluid Catalytic Cracker GDU – Gasoline Desulfurization Unit GHT – Gasoline Hydrotreater GOHT – Gas Oil Hydrotreater GPM – Gallon Per Minute HAGO – Heavy Atmospheric Gas Oil HCU – Hydrocracker Unit HDS – Hydrodesulfurization HDT – Hydrotreating HGO – Heavy Gas Oil HOC – Heavy Oil Cracker (FCC) H2 – Hydrogen H2S – Hydrogen Sulfide HF – Hydroflouric (acid) HVGO – Heavy Vacuum Gas Oil kV – Kilovolt

                             

kVA – Kilovolt Amp LCO – Light Cycle Oil LGO – Light Gas Oil LPG – Liquefied Petroleum Gas LSD – Low Sulfur Diesel LSR – Light Straight Run (Gasoline) MON – Motor Octane Number MTBE – Methyl Tertiary–Butyl Ether MW – Megawatt NGL – Natural Gas Liquids NOX – Nitrogen Oxides P–P – Propane–Propylene PSI – Pounds per Square Inch RBOB – Reformulated Blendstock for Oxygen Blending RDS – Resid Desulfurization RFG – Reformulated Gasoline RON – Research Octane Number RVP – Reid Vapor Pressure SMR – Steam Methane Reformer (Hydrogen Plant) SOX – Sulfur Oxides SRU – Sulfur Recovery Unit TAME – Tertiary Amyl Methyl Ether TAN – Total Acid Number ULSD – Ultra–low Sulfur Diesel VGO – Vacuum Gas Oil VOC – Volatile Organic Compound VPP – Voluntary Protection Program VTB – Vacuum Tower Bottoms WTI – West Texas Intermediate WWTP – Waste Water Treatment Plant

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Project Price Set Assumptions • Prices shown below are for illustrating a potential estimate for Valero’s economic projects • Price assumptions are based on a blend of recent market prices and Valero’s price forecast

Base Case ($/barrel)

2008 ($/barrel)

2009 ($/barrel)

2010 ($/barrel)

2011 ($/barrel)

2012 ($/barrel)

LLS Crude oil1

85.00

102.07

62.75

81.64

111.09

112.20

LLS - USGC HS Gas Oil

-3.45

2.03

-2.86

-2.72

-5.75

-7.59

USGC Gas Crack

6.00

2.47

6.91

5.32

5.11

4.66

USGC ULSD Crack

11.00

20.5

7.26

8.94

13.24

15.99

Natural Gas, $/MMBTU (NYMEX)

5.00

8.90

4.16

4.38

4.03

2.71

Commodity

1LLS

prices are roll adjusted

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Project Price Sensitivities • Price sensitivities shown below are for illustrating a potential estimate for Valero’s economic projects • Price assumptions are based on a blend of recent market prices and Valero’s price forecast Port Arthur HCU

St. Charles HCU

4

3.6

Crude oil - USGC HS Gas Oil, + $1/BBL

16.7

17.8

USGC Gas Crack, + $1/BBL

12.9

13.3

USGC ULSD Crack, + $1/BBL

18.4

20.8

Natural Gas, - $1/MMBTU

18.3

19.7

Total Investment IRR to 10% cost

1.3%

1.5%

EBITDA1 Sensitivities (Delta $ millions/year)

Crude oil, + $1/BBL

1Operating

income before depreciation and amortization expense

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Investor Relations Contacts For more information, please contact: Ashley Smith, CFA, CPA Vice President, Investor Relations 210.345.2744 [email protected] Matthew Jackson Investor Relations Specialist 210.345.2564 [email protected]

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